Reading 2-II: Standards of Professional Conduct & Guida

insider, foreign, against, country, class

Q12. A CFA Institute member is a U.S. citizen living and working in a foreign country. That country has no laws against insider trading. Based on this information, the CFA Institute member may:

A) not trade using insider information based upon the CFA Institute Standards.

B) trade using insider information.

C) not trade using insider information based upon the rules of the SEC.

Q13. The term "material" in the phrase "material nonpublic information" refers to information that is likely to affect significantly the market price of the issuing company's securities or that:

A) is acquired by the financial analyst from a special or confidential relationship with the issuing company.

B) is derived by the financial analyst from direct communication with an issuing company's management.

C) is likely to be considered important by reasonable investors in determining whether to trade a particular security.

Q14. A CFO who is a CFA Institute member is careful to make his press releases—some of them containing material and previously undisclosed information—clear and understandable to his readers. While writing a new release, he often has his current intern proofread rough drafts. He also sends electronic copies to his brother, an English teacher, to get suggestions concerning style and grammar. With respect to Standard II(A), Material Nonpublic Information, the CFO is:

A) not in violation of the Standard.

B) only in violation by e-mailing the pre-release version to his brother but not the intern, because the intern is in essence an employee of the firm.

C) violating the standard by either showing the pre-release version to his intern or sending it to his brother.

Q15. According to Standard II(A), prohibition against the use of material nonpublic information, which of the following statements is least accurate? Members who possess material nonpublic information related to the value of a security are expected to:

A) not trade on the information unless it was arrived at through the "mosaic theory."

B) make reasonable efforts to insure the information's accuracy before recommending that others trade on the information.

C) not trade on the information.